Author Topic: Ric Edelman - High-Fee Passive Advisor Hypocrisy  (Read 21543 times)

ProfWinkie

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Ric Edelman - High-Fee Passive Advisor Hypocrisy
« on: July 02, 2014, 11:02:34 AM »
When will Congress step in and limit advisors taking advantage of people with outrageous fees? We should start a movement!

"According to the Edelman Financial website, a $1 million account costs his clients 1.3% annually, which is $13,000 per year, not including fund expenses or trading costs."

http://www.forbes.com/2010/09/09/high-fee-index-fund-advisor-hypocrisy-personal-finance-indexer-ferri.html

foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #1 on: July 02, 2014, 12:00:32 PM »
Why? If people want to spend money on something they should be free to do so.   Personally, I like Rick a lot as a advistor, but I couldn't justify paying him .25%:)

When will Congress step in and limit advisors taking advantage of people with outrageous fees? We should start a movement!

"According to the Edelman Financial website, a $1 million account costs his clients 1.3% annually, which is $13,000 per year, not including fund expenses or trading costs."

http://www.forbes.com/2010/09/09/high-fee-index-fund-advisor-hypocrisy-personal-finance-indexer-ferri.html

ProfWinkie

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #2 on: July 02, 2014, 12:25:10 PM »
General I would agree with you. But here I belive action is necessary for the same reason we have laws that limit interest rates and mutual fund commissions... there is a reasonable basis for goverment intervetion to protect the uninformed and vulnerable from abuse.

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

RFAAOATB

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #3 on: July 02, 2014, 12:56:55 PM »
Perhaps this is a field we should get in on.  Financial advisor services as a fair profitable rate that undercuts the high expense areas.  Whoever is doing this honestly at a low fair rate needs to work on their advertising a bit more, but then they may need to charge higher rates to cover the advertising....

ProfWinkie

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #4 on: July 02, 2014, 12:59:29 PM »
You are so right!Edelman has a weekly radio show he buys time for and runs radio ads every day.

foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #5 on: July 02, 2014, 01:12:15 PM »
The other way of looking at it is that if the government wasn't distorting the health care market by subsidizing employer based health care, there might not have been a need for ACA. Not to mention if they didn't force hospitals to treat poor sick people, costs would be different (and more people would be dead).  There is a free market for advisors that doesn't exist in health care.  You don't like your advisor, don't go with them. 

And for what is worth I don't think there are any laws on mutual fund commissions.  There are FINRA limits but those are not laws. And limits on interest rates get interesting. What happens when your state has a 9% limit on mortgages but the going national rate is 12%? I am betting the laws get amended:)



General I would agree with you. But here I belive action is necessary for the same reason we have laws that limit interest rates and mutual fund commissions... there is a reasonable basis for goverment intervetion to protect the uninformed and vulnerable from abuse.

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

viper155

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #6 on: July 02, 2014, 01:22:52 PM »
Just change the channel...what makes you think Congress can remedy this when they do the same thing?

viper155

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #7 on: July 02, 2014, 01:24:42 PM »
You are so right!Edelman has a weekly radio show he buys time for and runs radio ads every day.

OMG!!! Not CAPITALISM!!!...run!!!!

kyleaaa

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #8 on: July 02, 2014, 01:28:51 PM »
1.3% doesn't seem outrageous at all to me. Higher than average, certainly, but not outrageous. 3% would be outrageous.

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #9 on: July 02, 2014, 03:48:49 PM »
1.3% doesn't seem outrageous at all to me. Higher than average, certainly, but not outrageous. 3% would be outrageous.

Yes but it is 1.3% PLUS fund expenses and trading fees. So I'd guess the real fee his clients pay is around 2.3% which really is outrageous.

milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #10 on: July 02, 2014, 08:56:34 PM »
These fees are outrageous. But I'm not sure outlawing them is the solution.

I would however support universal 401K portability, making all investors able to transfer their retirement funds from their employer based plans to broad index funds with expense ratios capped at 0.5%.

This would be a true market solution.



foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #11 on: July 02, 2014, 09:10:51 PM »
True market solution is to get rid of 401(k)s and make everything an IRA. Let employers focus on business and employees on planning for the future.  It would be great for educated consumers. Probably not for most employees though.

These fees are outrageous. But I'm not sure outlawing them is the solution.

I would however support universal 401K portability, making all investors able to transfer their retirement funds from their employer based plans to broad index funds with expense ratios capped at 0.5%.

This would be a true market solution.

milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #12 on: July 02, 2014, 09:17:36 PM »
Works for me, as long as employers can still match.

I do think that reserving tax preferences for investment in low cost index funds has merit. It's a bit paternalistic but the evidence is not controversial. Low cost index investing is the smart choice for most investors.

If the government is willing to allow the public to defer taxes, it should be allowed to protect the public from its own stupidity.

In taxable accounts of course, there should be no limit to the stupidity that people can expose themselves to.



foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #13 on: July 02, 2014, 10:04:56 PM »
Why stop there. Why not have the government dictate some AA to protect the public from the stupidity of either putting too much in stocks or not enough? The losses from that drastically exceed some 1-2% management fee


Works for me, as long as employers can still match.

I do think that reserving tax preferences for investment in low cost index funds has merit. It's a bit paternalistic but the evidence is not controversial. Low cost index investing is the smart choice for most investors.

If the government is willing to allow the public to defer taxes, it should be allowed to protect the public from its own stupidity.

In taxable accounts of course, there should be no limit to the stupidity that people can expose themselves to.

milesdividendmd

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Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #14 on: July 02, 2014, 10:11:48 PM »
Why stop there. Why not have the government dictate some AA to protect the public from the stupidity of either putting too much in stocks or not enough? The losses from that drastically exceed some 1-2% management fee


Works for me, as long as employers can still match.

I do think that reserving tax preferences for investment in low cost index funds has merit. It's a bit paternalistic but the evidence is not controversial. Low cost index investing is the smart choice for most investors.

If the government is willing to allow the public to defer taxes, it should be allowed to protect the public from its own stupidity.

In taxable accounts of course, there should be no limit to the stupidity that people can expose themselves to.

Ah. The slippery slope argument.

As always, it's a question of judgment. And the superiority of any specific asset allocation, is much less bullet proof than the demonstratable importance of avoiding unnecessary fees.

The ideal solution, is probably just strengthening and beefing up Social Security which is our most important, and successful social program ever.

The real reason such reforms will never happen of coarse, is because of the inherent corruptness of our pay to play political system. 

Wall Street has big bucks, and so they have a loud voice. And so the swindling continues.
« Last Edit: July 02, 2014, 11:36:52 PM by milesdividendmd »

warfreak2

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #15 on: July 03, 2014, 02:55:34 AM »
I think this is a product labelling issue. Just like loan sharks are legally required to include the annualised interest rate in their adverts, we could legally require financial advisors to state the long-term impact of their fees, over reasonable periods such as 10, 20, 30, and 40 years.

The "true" fees are what proportion of your wealth ends up in the hands of the advisor. For example, Dave Ramsey's ELPs' 30-year equivalent fee comes to ~36% (and the 40-year equivalent is ~45%); Vanguard's 30-year equivalent fee comes to ~5.5%. (To their credit, Vanguard do quote 10, 20 and 30-year equivalent fees.)

Using Vanguard's methodology (assuming a constant return of 6%), Ric Edelman's 1.3%/year fee comes to ~31% over 30 years.
« Last Edit: July 03, 2014, 03:00:14 AM by warfreak2 »

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #16 on: July 03, 2014, 03:41:03 AM »
I think this is a product labelling issue. Just like loan sharks are legally required to include the annualised interest rate in their adverts, we could legally require financial advisors to state the long-term impact of their fees, over reasonable periods such as 10, 20, 30, and 40 years.

The "true" fees are what proportion of your wealth ends up in the hands of the advisor. For example, Dave Ramsey's ELPs' 30-year equivalent fee comes to ~36% (and the 40-year equivalent is ~45%); Vanguard's 30-year equivalent fee comes to ~5.5%. (To their credit, Vanguard do quote 10, 20 and 30-year equivalent fees.)

Using Vanguard's methodology (assuming a constant return of 6%), Ric Edelman's 1.3%/year fee comes to ~31% over 30 years.

Well said!

milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #17 on: July 03, 2014, 11:24:03 AM »

I think this is a product labelling issue. Just like loan sharks are legally required to include the annualised interest rate in their adverts, we could legally require financial advisors to state the long-term impact of their fees, over reasonable periods such as 10, 20, 30, and 40 years.

The "true" fees are what proportion of your wealth ends up in the hands of the advisor. For example, Dave Ramsey's ELPs' 30-year equivalent fee comes to ~36% (and the 40-year equivalent is ~45%); Vanguard's 30-year equivalent fee comes to ~5.5%. (To their credit, Vanguard do quote 10, 20 and 30-year equivalent fees.)

Using Vanguard's methodology (assuming a constant return of 6%), Ric Edelman's 1.3%/year fee comes to ~31% over 30 years.

This is a good point, although when you talk about percentages lost over long time frames I believe it goes over the head of the majority of the public.

What I would like to see even more would be for it to be mandated for advisers to write in dollar figures exactly how much money they took from your account each statement.

Something along the lines of:

Money under management: $40,000
Income  this statement: $20
Management fees deducted this statement: $25





foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #18 on: July 03, 2014, 03:19:50 PM »
That is the problem when you start meddling. Is a 1% advisor fee + .1 ETF fee better or worse than a 1.1 mutual fund ER? The advantages of 50/50 plans over 0/100 for people with 30 year time frames is MUCH bigger than the advantages of paying .25% ER versus 1.25%. Preventing sales of stock funds during crashes also results in much higher returns. Don't get me wrong, paying 1%+ fees is stupid. But in the list of bad things you can do, it isn't very high up on the list.

A national pension (i.e there is no need for the income redistribution that SS does) that people can buy into would be interesting and probably the best bet for the average american.  The political will isn't there.



Why stop there. Why not have the government dictate some AA to protect the public from the stupidity of either putting too much in stocks or not enough? The losses from that drastically exceed some 1-2% management fee


Works for me, as long as employers can still match.

I do think that reserving tax preferences for investment in low cost index funds has merit. It's a bit paternalistic but the evidence is not controversial. Low cost index investing is the smart choice for most investors.

If the government is willing to allow the public to defer taxes, it should be allowed to protect the public from its own stupidity.

In taxable accounts of course, there should be no limit to the stupidity that people can expose themselves to.

Ah. The slippery slope argument.

As always, it's a question of judgment. And the superiority of any specific asset allocation, is much less bullet proof than the demonstratable importance of avoiding unnecessary fees.

The ideal solution, is probably just strengthening and beefing up Social Security which is our most important, and successful social program ever.

The real reason such reforms will never happen of coarse, is because of the inherent corruptness of our pay to play political system. 

Wall Street has big bucks, and so they have a loud voice. And so the swindling continues.

milesdividendmd

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Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #19 on: July 03, 2014, 06:05:45 PM »
A National pension works for me.

But your argument seems to me to be that if you can't fix everything, why fix anything at all?  (Which I don't agree with.)

There's no good reason for the government not to regulate the types of investments that citizens can put their tax preferred savings into.

If the regulation only helps a little bit, It's still an improvement.

And there's nothing wrong with continual improvement. It's called "good government."
« Last Edit: July 03, 2014, 07:48:00 PM by milesdividendmd »

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #20 on: July 05, 2014, 01:13:46 PM »
Thanks for the good comments

foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #21 on: July 06, 2014, 07:45:25 PM »
Its the unexpected consequences part. Lets say you limit the fees to .25%.  Maybe you can no longer get professional advice if you have less than 500k where in the past they would talk to you with a mere 125k.

If you are going to pass a law, require all 401(k)s to have at least 1 total market, bond, and international index fund with ERs< .2%.  That would at least allow everyone to have a decent 401(k). This is something that an individual can't do on their own (well unless they want to quit their job).

A National pension works for me.

But your argument seems to me to be that if you can't fix everything, why fix anything at all?  (Which I don't agree with.)

There's no good reason for the government not to regulate the types of investments that citizens can put their tax preferred savings into.

If the regulation only helps a little bit, It's still an improvement.

And there's nothing wrong with continual improvement. It's called "good government."

milesdividendmd

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Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #22 on: July 06, 2014, 08:02:48 PM »
Its the unexpected consequences part. Lets say you limit the fees to .25%.  Maybe you can no longer get professional advice if you have less than 500k where in the past they would talk to you with a mere 125k.

If you are going to pass a law, require all 401(k)s to have at least 1 total market, bond, and international index fund with ERs< .2%.  That would at least allow everyone to have a decent 401(k). This is something that an individual can't do on their own (well unless they want to quit their job).

A National pension works for me.

But your argument seems to me to be that if you can't fix everything, why fix anything at all?  (Which I don't agree with.)

There's no good reason for the government not to regulate the types of investments that citizens can put their tax preferred savings into.

If the regulation only helps a little bit, It's still an improvement.

And there's nothing wrong with continual improvement. It's called "good government."

The proposed law would have no such effect.

It would simply state that for a tax advantaged retirement fund there can be no expense ratio greater than X (  0.5 %  would seem reasonable. )

There was no such proposed regulation against hiring a fee only advisor, or having advisor services charge the difference between the fund expenses and X.

And besides if you think that most Americans would be poorly served by being locked out from "professional advice," we'll just have to disagree on that count.

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #23 on: July 06, 2014, 08:24:44 PM »

+1 miles. Nice to be in agreement!

If it's a tax advantaged account, the gov has a right to legislate if it wants. Otherwise there are all these guys making a buck on the tax dollar. There is nothing wrong with reasonable regulation, its called civilisation.



Its the unexpected consequences part. Lets say you limit the fees to .25%.  Maybe you can no longer get professional advice if you have less than 500k where in the past they would talk to you with a mere 125k.

If you are going to pass a law, require all 401(k)s to have at least 1 total market, bond, and international index fund with ERs< .2%.  That would at least allow everyone to have a decent 401(k). This is something that an individual can't do on their own (well unless they want to quit their job).

A National pension works for me.

But your argument seems to me to be that if you can't fix everything, why fix anything at all?  (Which I don't agree with.)

There's no good reason for the government not to regulate the types of investments that citizens can put their tax preferred savings into.

If the regulation only helps a little bit, It's still an improvement.

And there's nothing wrong with continual improvement. It's called "good government."

The proposed law would have no such effect.

It would simply state that for a tax advantaged retirement fund there can be no expense ratio greater than X (  0.5 %  would seem reasonable. )

There was no such proposed regulation against hiring a fee only advisor, or having advisor services charge the difference between the fund expenses and X.

And besides if you think that most Americans would be poorly served by being locked out from "professional advice," we'll just have to disagree on that count.

TreeTired

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #24 on: July 06, 2014, 08:28:53 PM »
Quote
A fair fee for servicing a $1 million client should be no more than $5,000 annually, which is 0.50%, and that includes basic personal finance advice. Anything more is making the advisor very, very wealthy.

Well, that's the whole point, isn't it?    Besides,  who was better off in 2013?   1.  The guy who was 100% in S&P index fund but paid a 1.3% fee,  or 2.  The guy who was in cash all year?

Personally,  I would save regulation for the guy who charges 200% interest on a payday loan,  or the "financial advisor" who churns a $1mm account down to $100k while generating millions in commissions for himself....  abuse like that.
« Last Edit: July 06, 2014, 08:30:47 PM by NC_MJ »

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #25 on: July 06, 2014, 11:47:49 PM »
Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

There is no need for ACA, but going much more into that would probably violate some rule here being too political.

Generally I'd say people should spend as they wish. Whenever the government stops people from spending money as they best see fit they're doing a disservice to all people. Some people are stupid, but it should be policy that unless someone is sufficiently incapable of rational thought (as in they are retarded and their care is entrusted to someone else or some agency), they should be treated as if they are smart and able to look out for their own best interests. And I can see the damage that some regulations do. For instance, in Forex which I've been researching lately, absolutely ridiculous regulations (specifically on hedging, FIFO, CFDs which are often traded along with forex) people are sending their money to brokers outside of US jurisdiction to foreign countries to trade, and usually the less reputable places as the reputable ones just say "We don't accept Americans. Your government will cause problems for us if we do." There's no reason for this, unless the US really wants itself to be poorer and other countries richer as a result, but was all in the guise of protecting the people from themselves.

milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #26 on: July 07, 2014, 12:52:34 AM »

Quote
A fair fee for servicing a $1 million client should be no more than $5,000 annually, which is 0.50%, and that includes basic personal finance advice. Anything more is making the advisor very, very wealthy.

Well, that's the whole point, isn't it?    Besides,  who was better off in 2013?   1.  The guy who was 100% in S&P index fund but paid a 1.3% fee,  or 2.  The guy who was in cash all year?

Personally,  I would save regulation for the guy who charges 200% interest on a payday loan,  or the "financial advisor" who churns a $1mm account down to $100k while generating millions in commissions for himself....  abuse like that.

Neither of the above wins (which is exactly the point).

The winner is the guy who is 100% invested in VOO at an ER of 0.05%. He will always beat the guy 100% invested in the S&P at an ER of 1.3% regardless of the year or market conditions.

To your second point, the need to regulate payday loans and investment products are not mutually exclusive. There is no need to choose.



milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #27 on: July 07, 2014, 12:57:17 AM »

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

There is no need for ACA, but going much more into that would probably violate some rule here being too political.

Generally I'd say people should spend as they wish. Whenever the government stops people from spending money as they best see fit they're doing a disservice to all people. Some people are stupid, but it should be policy that unless someone is sufficiently incapable of rational thought (as in they are retarded and their care is entrusted to someone else or some agency), they should be treated as if they are smart and able to look out for their own best interests. And I can see the damage that some regulations do. For instance, in Forex which I've been researching lately, absolutely ridiculous regulations (specifically on hedging, FIFO, CFDs which are often traded along with forex) people are sending their money to brokers outside of US jurisdiction to foreign countries to trade, and usually the less reputable places as the reputable ones just say "We don't accept Americans. Your government will cause problems for us if we do." There's no reason for this, unless the US really wants itself to be poorer and other countries richer as a result, but was all in the guise of protecting the people from themselves.

Our most recent financial collapse is a wonderful example of too little regulation. Alan Greenspan, a true believer in the ability of the markets to regulate themselves, resisted time and again putting any regulations or capital requirements on banks issuing CDOs. The result was disastrous for America collectively.

Just as there is such a thing as too much regulation, there is such a thing as too little.



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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #28 on: July 07, 2014, 06:30:25 AM »
+1 milesdividendmd

foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #29 on: July 08, 2014, 09:49:34 AM »
Its the unexpected consequences part. Lets say you limit the fees to .25%.  Maybe you can no longer get professional advice if you have less than 500k where in the past they would talk to you with a mere 125k.

If you are going to pass a law, require all 401(k)s to have at least 1 total market, bond, and international index fund with ERs< .2%.  That would at least allow everyone to have a decent 401(k). This is something that an individual can't do on their own (well unless they want to quit their job).

A National pension works for me.

But your argument seems to me to be that if you can't fix everything, why fix anything at all?  (Which I don't agree with.)

There's no good reason for the government not to regulate the types of investments that citizens can put their tax preferred savings into.

If the regulation only helps a little bit, It's still an improvement.

And there's nothing wrong with continual improvement. It's called "good government."

The proposed law would have no such effect.

It would simply state that for a tax advantaged retirement fund there can be no expense ratio greater than X (  0.5 %  would seem reasonable. )

There was no such proposed regulation against hiring a fee only advisor, or having advisor services charge the difference between the fund expenses and X.

And besides if you think that most Americans would be poorly served by being locked out from "professional advice," we'll just have to disagree on that count.


If you an advisor who needs 2k/yr per client to break even would you take a 250k account at 1%? Sure. Would you take one at .25% were you lose 1500 per year taking care of the client? Probably not.   There is a reason why Rick doesn't offer his services at .35% to someone with 100k to invest. 

You might not need the advice. I sure as heck don't.  But I am not willing to impose my value judgements on other people


milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #30 on: July 08, 2014, 12:17:33 PM »

Its the unexpected consequences part. Lets say you limit the fees to .25%.  Maybe you can no longer get professional advice if you have less than 500k where in the past they would talk to you with a mere 125k.

If you are going to pass a law, require all 401(k)s to have at least 1 total market, bond, and international index fund with ERs< .2%.  That would at least allow everyone to have a decent 401(k). This is something that an individual can't do on their own (well unless they want to quit their job).

A National pension works for me.

But your argument seems to me to be that if you can't fix everything, why fix anything at all?  (Which I don't agree with.)

There's no good reason for the government not to regulate the types of investments that citizens can put their tax preferred savings into.

If the regulation only helps a little bit, It's still an improvement.

And there's nothing wrong with continual improvement. It's called "good government."

The proposed law would have no such effect.

It would simply state that for a tax advantaged retirement fund there can be no expense ratio greater than X (  0.5 %  would seem reasonable. )

There was no such proposed regulation against hiring a fee only advisor, or having advisor services charge the difference between the fund expenses and X.

And besides if you think that most Americans would be poorly served by being locked out from "professional advice," we'll just have to disagree on that count.


If you an advisor who needs 2k/yr per client to break even would you take a 250k account at 1%? Sure. Would you take one at .25% were you lose 1500 per year taking care of the client? Probably not.   There is a reason why Rick doesn't offer his services at .35% to someone with 100k to invest. 

You might not need the advice. I sure as heck don't.  But I am not willing to impose my value judgements on other people

The national pension which you endorse would put the very same hypothetical advisor out of business if he is dependant on a high asset under management fee on tax preferred savings.

Your value judgements are an equal imposition on others as other peoples'. You just have different values.



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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #31 on: July 09, 2014, 06:15:20 AM »
Consider betterment.com they can do it for 35-15 basis points. It seems telling that they can do it for a much lower fee.

foobar

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #32 on: July 09, 2014, 08:43:23 AM »


The national pension which you endorse would put the very same hypothetical advisor out of business if he is dependant on a high asset under management fee on tax preferred savings.

Your value judgements are an equal imposition on others as other peoples'. You just have different values.

Yep but it would also add a choice for the consumer. They could choose to pay a firm (or the government) to take on the investment risk. I am fine giving people choices. I am not a big fan of taking choices away (i.e. making investing in that plan mandatory) from consumers.  They might make dumb ones but I respect their freedom to make those choices.

Mr Mark

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #33 on: July 09, 2014, 09:31:04 PM »
Yes, but that doesn't mean you should encourage bad decision making, by giving out tax subsidies.

You can also enforce fair contracts, and mandate certain consumer understandable disclosure. 

And you can impact the market, as a government,  just because it is such a big consumer and customer within the market it also regulates. So by capping fees on tax benefited accounts, it could help create a better fairer market.

brewer12345

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #34 on: July 09, 2014, 10:49:26 PM »

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

There is no need for ACA, but going much more into that would probably violate some rule here being too political.

Generally I'd say people should spend as they wish. Whenever the government stops people from spending money as they best see fit they're doing a disservice to all people. Some people are stupid, but it should be policy that unless someone is sufficiently incapable of rational thought (as in they are retarded and their care is entrusted to someone else or some agency), they should be treated as if they are smart and able to look out for their own best interests. And I can see the damage that some regulations do. For instance, in Forex which I've been researching lately, absolutely ridiculous regulations (specifically on hedging, FIFO, CFDs which are often traded along with forex) people are sending their money to brokers outside of US jurisdiction to foreign countries to trade, and usually the less reputable places as the reputable ones just say "We don't accept Americans. Your government will cause problems for us if we do." There's no reason for this, unless the US really wants itself to be poorer and other countries richer as a result, but was all in the guise of protecting the people from themselves.

Our most recent financial collapse is a wonderful example of too little regulation. Alan Greenspan, a true believer in the ability of the markets to regulate themselves, resisted time and again putting any regulations or capital requirements on banks issuing CDOs. The result was disastrous for America collectively.

Just as there is such a thing as too much regulation, there is such a thing as too little.

Yes, yes, let's regulate everything out of existence!

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #35 on: July 11, 2014, 06:21:52 AM »
Brewer

IMHO your response is a red herring. Banks, insurance companies and credit cards companies care have not been regulated out of existence and they have had limits on their fees for over 100 years.

PloddingInsight

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #36 on: July 11, 2014, 06:40:42 AM »
This reminds me of the deluxe rolled oats thread.

http://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/meijer-naturals-quick-oats/

Some people want to pay more so they feel they're getting an extra-good product.  This is especially true for goods like wine and cigars ... and investment advice.  The consumer can't tell the difference, so they look to the high mark-up as evidence they are getting something special.

In part, the high mark-up ... is the product.  I think investment advisers rationally understand that if they offered their advice at rock-bottom prices, the message consumers would receive is that their advice isn't worth much.

I say just let it be.

brewer12345

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #37 on: July 11, 2014, 08:13:01 AM »
Brewer

IMHO your response is a red herring. Banks, insurance companies and credit cards companies care have not been regulated out of existence and they have had limits on their fees for over 100 years.

Which you responded to with a red barracuda.  Banks, insurers and credit cards have almost no limits on what they charge and when those limits became inconvenient in past years they were removed. I just spent 5 years regulating banks and insurers (all at the same time, yay) and I can assure you that what they charged their customers was absolutely none of my concern, so long as they were charging enough to be profitable.

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #38 on: July 11, 2014, 10:46:36 AM »
Brewer12345

1. It is "red herring" which is defined as "a fallacy in which an irrelevant topic is presented in order to divert attention from the original issue" NOT not a "red barracuda."

2. I must disagree regardless of your professed backgroud. There are "Usury Limits" laws in in every state see http://www.lectlaw.com/files/ban02.htm  for a summary.

3. I guess if regualtors do not enfore the law there is no wonder banks make so much money on poor people. Seems like a surprising admisson.

Jack

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #39 on: July 11, 2014, 11:22:49 AM »
I'm sorry, but the reflexive "all regulations are bad" arguments by people who profess to believe in the "free market" are straight up bullshit. Always, without exception.

Why? Because the "free market" requires that all participants are perfectly informed, and informing the less-powerful participants does not ever happen naturally, but instead absolutely requires government regulation!

Sure, you can argue that letting people freely choose to pay extra for a meaningless "natural" food product is reasonable because that's their choice (heck, I might agree). But to argue that people should be allowed to be swindled into paying extra for a "natural" food product because they don't know that "natural" is meaningless is not only completely ridiculous but also anti-free-market!

milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #40 on: July 11, 2014, 12:23:09 PM »
Brewer12345

1. It is "red herring" which is defined as "a fallacy in which an irrelevant topic is presented in order to divert attention from the original issue" NOT not a "red barracuda."

2. I must disagree regardless of your professed backgroud. There are "Usury Limits" laws in in every state see http://www.lectlaw.com/files/ban02.htm  for a summary.

3. I guess if regualtors do not enfore the law there is no wonder banks make so much money on poor people. Seems like a surprising admisson.

Agree 100% with all three points.

My only argument here is with even responding to such an uninformed and thoughtless series of posts.  Some arguments are simply not worth the time.  No one ends up learning a thing from engaging trolls in dialogue (least of all the trolls.)

One can intelligently argue either side about the correct level of and degree of governmental regulation.  But one can't argue with a point like this;

"Yes, yes, let's regulate everything out of existence!"

brewer12345

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #41 on: July 11, 2014, 07:56:25 PM »
Brewer12345

1. It is "red herring" which is defined as "a fallacy in which an irrelevant topic is presented in order to divert attention from the original issue" NOT not a "red barracuda."

2. I must disagree regardless of your professed backgroud. There are "Usury Limits" laws in in every state see http://www.lectlaw.com/files/ban02.htm  for a summary.

3. I guess if regualtors do not enfore the law there is no wonder banks make so much money on poor people. Seems like a surprising admisson.

Whatever you say, sport.  Usury laws are in general not ever a real impediment to banks charging what they wish to charge, assuming that the market will bear it.  If you like living in a fictional world, be my guest.  You never addressed insurers, but I can think of at least half a dozen ways to legally charge whatever I like in that industry and I am just a plodding flatfoot.  Presumably the operators in that industry have far more ways to do it.

My job as a regulator was to enforce safety and soundness regulations, capital standards, force financial institutions to properly manage their risks if they already were not, and in general wade through an open sewer in waist-high filth.  I did so for a fraction of what I could have earned in the private sector.  Getting crapped on by people who never had to walk a mile in my rubber boots is one of the many reasons I was happy to quit that job after a 5 year sentence.

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #42 on: July 12, 2014, 08:35:57 AM »
Its the unexpected consequences part. Lets say you limit the fees to .25%.  Maybe you can no longer get professional advice if you have less than 500k where in the past they would talk to you with a mere 125k.

If you are going to pass a law, require all 401(k)s to have at least 1 total market, bond, and international index fund with ERs< .2%.  That would at least allow everyone to have a decent 401(k). This is something that an individual can't do on their own (well unless they want to quit their job).

A National pension works for me.

But your argument seems to me to be that if you can't fix everything, why fix anything at all?  (Which I don't agree with.)

There's no good reason for the government not to regulate the types of investments that citizens can put their tax preferred savings into.

If the regulation only helps a little bit, It's still an improvement.

And there's nothing wrong with continual improvement. It's called "good government."

The proposed law would have no such effect.

It would simply state that for a tax advantaged retirement fund there can be no expense ratio greater than X (  0.5 %  would seem reasonable. )

There was no such proposed regulation against hiring a fee only advisor, or having advisor services charge the difference between the fund expenses and X.

And besides if you think that most Americans would be poorly served by being locked out from "professional advice," we'll just have to disagree on that count.

+1 for the doctor. And I also don't think (note -- this is subjective matter) that 1.3% is outrageous either, on top of mutual fund fees. It would be outrageous for ME and I would never pay it, but Congress getting involved? Really?? Oy gavay!!

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #43 on: July 12, 2014, 08:57:12 AM »
General I would agree with you. But here I belive action is necessary for the same reason we have laws that limit interest rates and mutual fund commissions... there is a reasonable basis for goverment intervetion to protect the uninformed and vulnerable from abuse.

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

I think it would be a better solution to 1) open up the 401k marketplace so you have the right to put that money in any qualified account--not just where your company chooses or 2) make sure companies offer at least 50% low fee options and label the overall account fees.

brewer12345

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #44 on: July 12, 2014, 09:24:12 AM »
General I would agree with you. But here I belive action is necessary for the same reason we have laws that limit interest rates and mutual fund commissions... there is a reasonable basis for goverment intervetion to protect the uninformed and vulnerable from abuse.

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

I think it would be a better solution to 1) open up the 401k marketplace so you have the right to put that money in any qualified account--not just where your company chooses or 2) make sure companies offer at least 50% low fee options and label the overall account fees.

I think better transparency for retirement account fees would go a long way toward fixing some of the more flagrant problems in this market.  The hard part with an open access platform is who will pay for it? A big reason people get hammered with high fees in small group plans is that is the mechanism by which the overhead fees get paid.

milesdividendmd

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Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #45 on: July 12, 2014, 11:22:27 AM »
General I would agree with you. But here I belive action is necessary for the same reason we have laws that limit interest rates and mutual fund commissions... there is a reasonable basis for goverment intervetion to protect the uninformed and vulnerable from abuse.

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

I think it would be a better solution to 1) open up the 401k marketplace so you have the right to put that money in any qualified account--not just where your company chooses or 2) make sure companies offer at least 50% low fee options and label the overall account fees.

I think better transparency for retirement account fees would go a long way toward fixing some of the more flagrant problems in this market.  The hard part with an open access platform is who will pay for it? A big reason people get hammered with high fees in small group plans is that is the mechanism by which the overhead fees get paid.

This is a weak argument when you consider the wealth of availability of fee free IRA brokerage options. Are you arguing that there are unique overhead fees relative to employment based vs non employment based investment accounts?

The chief difference in the quality of IRA vs 401k offerings is that the investor in a 401k is a captive audience until he leaves his employer or turns 59.5.

All the more reason for the government to protect workers investing in work based employer accounts by offering them portability and a cap on fees.

brewer12345

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #46 on: July 12, 2014, 12:08:10 PM »
General I would agree with you. But here I belive action is necessary for the same reason we have laws that limit interest rates and mutual fund commissions... there is a reasonable basis for goverment intervetion to protect the uninformed and vulnerable from abuse.

Respectfully, using your logic there would be no need for ACA, we could all just choose to work for companies that offer good health care.

I think it would be a better solution to 1) open up the 401k marketplace so you have the right to put that money in any qualified account--not just where your company chooses or 2) make sure companies offer at least 50% low fee options and label the overall account fees.

I think better transparency for retirement account fees would go a long way toward fixing some of the more flagrant problems in this market.  The hard part with an open access platform is who will pay for it? A big reason people get hammered with high fees in small group plans is that is the mechanism by which the overhead fees get paid.

This is a weak argument when you consider the wealth of availability of fee free IRA brokerage options. Are you arguing that there are unique overhead fees relative to employment based vs non employment based investment accounts?

The chief difference in the quality of IRA vs 401k offerings is that the investor in a 401k is a captive audience until he leaves his employer or turns 59.5.

All the more reason for the government to protect workers investing in work based employer accounts by offering them portability and a cap on fees.

I have dealt professionally with financial institutions that traffic in the small group market and I have been in a small group plans. Basically the employers are usually unwilling to pay more than a nominal amount to set up 401k etc. plans in small shops.  So the way they set up the plan without spending money is to allow the plan providers to cover the costs of administration, commissions, etc. by bumping up expense ratios in plan participant investment options.  I am not real wild about this concept and I didn't like paying the extra fees, but since the alternative would likely have been no access to a 401k or similar for years at a time during my highest earning years, I would be a lot poorer without those plans despite the excess fees.  If you mandate lower fees, it is very likely that a large number of workers (millions) in small group plans will  longer have access to a retirement savings plan.  Since the likes of Vanguard cannot really deal with the sub-50 covered lives market, those people will end up SOL.

milesdividendmd

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #47 on: July 12, 2014, 12:40:57 PM »
And yet vanguard is happy to take all comers fee free with no minimums for their IRA plans.

Again your argument fails to define why 401k plans require extra money to cover administrative costs relative to IRA's.

A solo 401k from vanguard only costs $20, and I am quite sure that if the market were opened up with true portability there would be a multitude of fee free options.



brewer12345

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #48 on: July 12, 2014, 01:05:08 PM »
And yet vanguard is happy to take all comers fee free with no minimums for their IRA plans.

Again your argument fails to define why 401k plans require extra money to cover administrative costs relative to IRA's.

A solo 401k from vanguard only costs $20, and I am quite sure that if the market were opened up with true portability there would be a multitude of fee free options.

Cold be that complete portability would obviate much of this problem.  But that is not the structure of the market today.  ERISA plans do have significant administrative burden and someone has to do the work.  The small employer is not capable and they don't have the budget to pay someone else to do it.  It is that simple.  So the only source of funds is to take it out of the plan participants' pockets.  If we fundamentally change the world, that might not longer be the case.  But if you simply limit the fees that can be charged on 401ks, millions of people will lose access to these plans.

Mr Mark

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Re: Ric Edelman - High-Fee Passive Advisor Hypocrisy
« Reply #49 on: July 13, 2014, 07:48:54 PM »
Then also pass portability,  and establish the post office as a 401k provider of last resort at the maximum fee level. And then buy a basket of index funds at Vanguard et al, subsidising the post office with the delta in fees.